CDPQ to Invest Over US$10 Billion in the UK Over the Next Five Years
Canada’s second-largest pension fund plans to invest more than £8bn in the UK over the next five years, in a boost to chancellor Rachel Reeves as she seeks external investment to fund big infrastructure projects.
Caisse de dépôt et placement du Québec, which manages C$473bn (£254bn) on behalf of 6mn pension savers, planned to increase its allocation to UK assets by 50 per cent over the next five years, the fund’s chief executive Charles Emond told the Financial Times in an interview.
“We’d like to be a partner of trust and choice in the UK,” said Emond, adding that the government’s plans to increase infrastructure spending were “a huge opportunity and we’d like to be there in the early stages to see if we can do something”.
He added that the UK would be “top of the list” compared with many other countries in terms of “willingness, clarity, transparency, deal mode and execution, seriousness and welcoming us . . . from that perspective they stood out and I think real stuff will come out of it”.
CDPQ — one of the world’s largest infrastructure investors — currently invests C$32bn (£17bn) in the UK, with assets including stakes in Wales-based electricity generator First Hydro Company and London Array Offshore Wind Farm, located in the Thames Estuary.
The fund sold its stake in Heathrow airport late last year after owning it for more than 16 years.
Emond, who took the reins at CDPQ in 2020, a year after joining from Scotiabank, said he expected the fund’s allocation to Europe more broadly to grow from its current level of 15 per cent of the portfolio to as much as 17 per cent, with new investment focused on assets linked to the energy transition.
“In Europe, energy security matters a lot . . . governments have financial constraints . . . that’s where private capital like us can come in,” said Emond.
The Montreal-based fund’s plan to increase investment in the UK, as well as in France and Germany, comes as it is preparing to rebalance assets away from the US, which currently make up around 40 per cent of its portfolio.
The 52-year-old chief executive said the fund’s US exposure would probably be “trimmed a little bit” as it was “at a peak after a decade of outperformance”. But he added it remained the “deepest, biggest, closest market to us and we will continue to deploy money there”.
CDPQ’s plan to invest more in Britain comes as 17 of the UK’s largest defined contribution pension providers have pledged to invest at least 5 per cent of assets in their default funds in British private markets by the end of the decade, a move the government hopes will drive £25bn of investment into the UK.
Emond said this commitment from UK pension funds could create a “positive synergy” and help attract more overseas investment into the UK. He said CDPQ was keen to invest alongside British retirement funds as “like-minded partners” with local knowledge.
The fund currently has C$25bn in France — its second-largest market in Europe — which Emond also expects to increase by 50 per cent by the end of the decade.
He added he was investing “time and effort” in exploring opportunities in Germany, with the country’s energy needs and loosened fiscal rules ushering in “a new beginning there with plenty of opportunities”.
I've had conversations with CDPQ's CEO Charles Emond in the past where he bluntly told me: "Let Bay Street and Wall Street know we are hungry for big deals."
No better platform than the Financial Times for Charles Emond to let the world know the organization wants to massively expand into the UK, France and Germany over the next five years focusing on infrastructure and private assets broadly and energy transition/ security more specifically.
He sounded all the right notes, CDPQ wants to be "a partner of trust and choice in the UK" and participate in deals " where CDPQ sees “a huge opportunity" and they want to be there "in the early stages" to partner up with "like-minded investors" on deals.
He added that the UK would be “top of the list” compared with many other countries in terms of “willingness, clarity, transparency, deal mode and execution, seriousness and welcoming us . . . from that perspective they stood out and I think real stuff will come out of it”.
The truth is the UK has always been a destination of choice for all of Canada's Maple Eight for a lot of reasons: great public-private partnerships, openness to foreign investors, rule of law, clear regulations and solid risk and inflation-adjusted returns over the long run with a stable currency.
Last year, UK deputy trade minister for North America, Alan Gogbashian, and Chancellor of the Exchequer Rachel Reeves made trips to Canada, courting Canadian pension funds:
Officials from the United Kingdom have been making the rounds in Canada this month, talking to executives at the Maple Eight, a group of major pension investment organizations that includes the Canada Pension Plan Investment Board, the Ontario Teachers’ Pension Plan and the Caisse de dépôt et placement du Québec.
On their agenda is an ambitious plan being pursued by Prime Minister Keir Starmer’s new Labour government, which has vowed to improve the country’s transportation and infrastructure systems, to build more homes, and to move forward on the energy transition away from carbon-based fuels.
A new £7.3bn National Wealth Fund has been created to help meet these goals, with hopes of tapping into institutional funds both at home and abroad to tackle projects highlighted by Britain’s national infrastructure commission.
“We’ve got a big pipeline,” said Ceri Smith, director general of strategy and investment at the U.K.’s Department for Business and Trade, whose pitch was made to Canada’s largest pensions during stops in Toronto and Montreal. “We have literally tens of billions of pounds of future demand in order to do the transition, but also to renew infrastructure in the U.K.”
Britain has underinvested in infrastructure, with investment levels the lowest among G7 countries over recent decades, Smith said, and this is “something the new government is absolutely determined to address.”
And that’s where Canada’s largest institutional investors come in.
Like the Canadian government, the U.K. is hoping that the funding required for such large-scale projects will come not only from government coffers but from well-endowed institutional investors that already pump money into such assets around the world.
“We are absolutely clear that the scale of the investment challenge is such that we cannot finance it ourselves,” he said. “I’ve been spending my time meeting many of the Maple Eight — or nine or 10, depending on who you talk to — and they are already significant investors in the United Kingdom.”
Smith said he expects to continue to the talks with representatives of some of Canada’s largest pension and investment funds again soon, this time in London, at an Oct. 14 invitation-only summit on international investment, the first convened by the new Labour government.
“We’re looking forward to welcoming a significant number of Canadian investors, including but not limited to the Maple Eight,” he said, adding that the turnout is expected even though the event falls on Canada’s Thanksgiving holiday.
Canadian pension funds have been eager investors in the United Kingdom in the past, setting up offices in London to make investments across Europe, and enjoying a relatively familiar and stable government and regulatory landscape.
For example, Teachers’, Ontario Municipal Employees Retirement System (OMERS), Alberta Investment Management Corp. (AIMCo), and the Caisse own stakes in major airports in London. PSP Investments, meanwhile, teamed up with Bridge Industrial in 2021 to develop logistics properties in the United Kingdom, targeting a portfolio of US$1.4 billion.
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In recent months, however, both the U.K.’s deputy trade minister for North America, Alan Gogbashian, and U.K. Chancellor of the Exchequer Rachel Reeves have made trips to Canada. Gogbashian was at the British Consulate in Toronto at the same time as Smith’s visit, while Reeves came to Canada in August.
In an interview, Gogbashian said he’s confident the two countries can continue to build on a strong foundation.
“Although the FTA (free trade agreement) didn’t proceed (in January), the existing trade relationship with Canada without an FTA is already incredibly strong,” Gogbashian said.
“We’ve got the existing U.K.-Canada trade continuity agreement (and) annual trade between the U.K. and Canada is at $44 billion Canadian dollars, so it’s already an extremely positive situation.”
The U.K. was Canada’s fourth-largest single-country trading partner for goods and services in 2023, according to Global Affairs Canada
Moreover, Gogbashian said, Canada had made more than $100 billion in direct investments in the U.K. by the end of 2023.
The latter provides context to yesterday's FT article but it's clear to me at least that the CEOs of Canada's Maple Eight were courted by top UK officials to invest there to address their under-investment in infrastructure.
Canada is struggling with the same issues but the UK government has been a lot faster in courting Canada's Maple Eight.
Moreover, I recently discussed how UK pension fund managers have agreed to invest at least 5% of their assets into UK private markets, marking a win for the Labour government that’s seeking to boost the economy by drawing billions of pounds into local startups and infrastructure projects.
This allows for CDPQ and other large Canadian pension funds to invest in major projects alongside these UK pension managers who are "like-minded investors with local knowledge" and also lend their expertise and network to them.
In short, CDPQ's massive push into the UK didn't come out of thin air, they've been carefully planning this for months with high levels meetings taking place.
The same thing for France and Germany, it's been in the works for some time.
And note what Charles Emond stated above, the expansion in Europe from current 15% to 17% mostly in assets linked to energy transition won't come at the expense of US which remains a very important market (they'll trim a bit there only because outperformance left them more allocated there).
The way I see all these announcements is CDPQ and other large Canadian pension funds are prepared to invest heavily in the UK where under-investment in infrastructure and high government debt means they need those investments and the same can be said about France and Germany although the Germans are spending massively on infrastructure.
Call it the new pension fund capitalism, call it whatever you want, I see this as a win-win for members and governments alike.
Below, a detailed clip on why Canada`s CDPQ will invest over $10 billion in UK.
The news was so big, it even made news in Greece's The Power Game.
Also, as UK pension fund managers agree to invest at least 5% of their assets into UK private markets, Chancellor Rachel Reeves says she hopes the deal will unlock billions of pounds for infrastructure projects and local startups, but she won't rule out mandating funds to invest. Alastair King, Lord Mayor of the City of London, and Andy Briggs, Chief Executive of Phoenix Group both join Bloomberg's Francine Lacqua to discuss how this could impact the UK economy.
Lastly, King Charles III says Canada is seeing a “renewed sense of national pride, unity and hope” at a critical time while delivering the throne speech on Tuesday.
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